ArcelorMittal Slashes Output Again

ArcelorMittal, the world's largest steelmaker, on Nov. 5 doubled its fourth-quarter output cut to 30% as the global financial crisis undercuts demand. Third-quarter results far below analyst forecasts drove the message home that the once booming industry faces difficult times ahead which will test all of head Lakshmi Mittal's business skills and the rationale of going for unprecedented scale and reach.

The steel industry is a leading indicator of the economic cycle, on the way up but also on the way down. In the last few years the price of steel has risen sharply on strong global growth and huge demand from emerging economies, especially China.

Company finance director Aditya Mittal said the group would cut output by 30% in the fourth quarter instead of the 15% announced previously owing to a slump in demand as the global economy turns sharply downwards. The production cut is an average, with some centers such as France and Belgium seeing reductions of 50% because the situation in Europe is "more difficult."

Asked why the company had had to take wider measures, Aditya Mittal said "that things had got worse in the past three weeks." The new steps being taken would allow ArcelorMittal to adjust output as customers reduced their stocks, a process that will likely continue into early 2009." After that, "demand should pick up again and we will be able to reduce the production cutbacks," he said, adding that the overall economic situation "will stabilize in 2009."

"We are optimistic about the industry outlook in the medium term but it is appropriate to pause our growth strategy until the economic prospects settle," Lakshmi Mittal said.

The cutbacks were "temporary" and ArcelorMittal does not "expect any permanent closure of installations in Europe" given an expected recovery in 2009, board member Michel Wurth said.

Last month, the company warned that "in the face of a fall in demand we are in the process of reducing production, which could reach as much as 15%." It then shut down furnaces at about a dozen European sites, citing a fall in demand from automakers whose sales have been savaged as consumers cut back on spending in the face of the global credit crunch.

Wurth said that although ArcelorMittal was putting back some of its capital spending in Europe as elsewhere, it had not changed its long-term plans, a point made by other company officials.

The Financial Times reported that in India the company would delay capital investment worth $20 billion from 2009 to 2012, with Lakshmi Mittal acknowledging that there had to be some delays.

Meanwhile ArcelorMittal reported that its three months to September net profit rose 29% from a year earlier to $3.8 billion.